Your Ability to Make Gifts Throughout Your Lifetime

Gifting can be a satisfying way of saving your heirs a significant amount of inheritance tax.

This is often referred to as inheritance tax planning, and this can be very complicated in certain situations, but in others it can be straight forward and can be done voluntarily.

One of the easiest ways to reduce a future inheritance tax (IHT) liability, is to give your wealth away during your lifetime. In essence, for every £10,000 you move out of your estate while you are still alive, you will have saved your loved ones £4000 in tax.

What is also to be remembered, that giving money during your lifetime gives you the opportunity and pleasure of seeing your wealth being enjoyed.

Below are some suggestions of how you would do this.

Every Year

An effective way to reduce your estate is to know your allowance and take advantage of them every year, you can make an annual gift of up to £3000, which can be divided into any number of smaller amounts and gifts.

You can also make use of any unused gift allowance from the previous tax year, so a couple could potentially remove £12,000 from their joint estate immediately.

You can give a small gift of up to £250 to as many people as you like. The only catch is that, the same beneficiary cannot receive a small gift and any of your annual gift allowance (refer to above) in the same year.

You can also make wedding gifts of between £1000 and £5000, depending on your relationship to the bride and groom. Be sure to keep records, so your executors can prove you used the allowances.

As you would expect, HM Revenue and Customs have forms to cover the above situations, and completing a form IHT403 every year is one way to do this.

We do not give specific financial advice, but a further way of saving into a tax efficient investment on behalf of a grand-child, can help with university costs, buying a house or saving for a person. By setting up an investment such as a junior ISA – topped up every birthday, perhaps you can reduce your IHT liability while helping them prepare for their future.